A balance transfer — or shifting the debt on one credit card to another — impacts everyone’s credit score differently. How and whether a balance transfer affects your credit score depends on the specifics of the transfer, your credit history and other factors.

  1. Balance Transfers and Your Credit Score
  2. How Your Credit Score is Calculated

1. Balance Transfers and Your Credit Score

How a balance transfer affects your credit score depends on four factors:

  • Hard inquiry — A new card means a hard inquiry into your credit, which could impact your score. Too many hard inquiries in a short period of time can negatively impact your credit score.
  • Credit utilization — Opening a new credit card to take advantage of a balance transfer, combined with spending less on your credit cards, could bring down your credit utilization rate (a factor in determining your credit score). A general rule of thumb for credit utilization is to try and keep your credit utilization rate below 30%.
  • Age of your credit accounts — If you open a new credit card for a balance transfer and then close your old credit card account, you’re decreasing the average age of your credit history.
  • Payments on the new card — Taking a balance transfer on your new credit card and diligently paying down your debt may save you money on interest. However, you’ll still need to pay off additional purchases made with your new credit card to avoid paying interest on those charges.

To better understand the potential impact of a balance transfer on your credit, learn more about the factors that make up a credit score.

 2. How Your Credit Score is Calculated

A credit score provides a lender a quick way to gauge your creditworthiness by measuring the likelihood you will pay your loans back and whether you’ll do so on time. Your FICO® credit score (one of several credit scores available) is based on five main factors, each contributing a different percentage to the score:

  • Payment history — This factor refers to a borrower making on-time payments to debts. Missing payments can negatively affect a credit score. Payment history has the largest impact, usually about 35 percent of the score. If you do a balance transfer, it will be important to make on-time payments and begin steadily paying down any debt you might have.
  • Amount Owed — Credit usage is approximately 30 percent of a credit score. A credit utilization rate, also known as your balance-to-limit ratio, compares your total balances to your total credit limits. Generally, the higher your credit utilization, the lower your credit score will be.
  • Length of Credit History — Your credit history typically accounts for 15 percent of a credit score. Generally, a longer credit history will increase a score, all else being equal.
  • New Credit — New credit inquires generally make up 10 percent of a credit score. Each time you apply for a new credit card, a “hard inquiry” is placed on your credit report. Applying for new credit card to make take advantage of a balance transfer offer Too many applications for credit cards can negatively affect a credit score and can indicate a higher credit risk to lenders.

It’s important to remember that any change in your credit usage or credit payment activity may affect your score. Credit scores move up and down to reflect the latest information in your credit file. Checking your credit score is a good way to keep up with changes in your credit report and monitor the impact of positive or negative events.

When considering a balance transfer it’s important to stay informed and read the fine print carefully. Understand all the costs involved and think about the cost of the balance transfer versus the long-term cost of carrying high interest debt.

Originally published February 10, 2015. 

Updated March 15, 2021. 

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